Uncovered interest rate parity: A gravity-panel approach

Orellana, Vanessa; Pino, Gabriel

doi:10.1016/j.heliyon.2021.e08350

Cited by 3 publications

(3 citation statements)

References 55 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The interest rate parity (Keynes, 1923) and the Fisher effect (1930) were not evident with major hard currencies other than GBP. This is in line with the findings of Wu (1998), Lily (2012), Yung (2017), Su (2019) and Orellana (2021).…”

Section: Discussionsupporting

confidence: 92%

“…The interest rate variable failed to integrate with the exchange rates of INR/USD, INR/EUR and INR/JPY. This result agrees with the arguments of Wu (1998), Lily (2012), Yung (2017), Su (2019) and Orellana (2021). The COVID-19 related turbulence foil the efficiency of capital markets across the globe.…”

supporting

confidence: 89%

“…The uncovered interest rate parity establishes a proportional relationship between exchange rate differential and the interest rate between two economies. This relationship holds true for high income economies, whereas this proposition has rejected for mediumincome countries (Orellana and Pino, 2021). The UIRP theory will not work in the absence of efficient market hypothesis.…”

Section: Literature Reviewmentioning

confidence: 93%

See 2 more Smart Citations

Does FX market in India integrated to exchange rate theories? a review amidst COVID-19

Aravind

2023

CyA

View full text Add to dashboard Cite

The exchange rate theories argue that the parity between two currencies is determined by various macroeconomic factors prevailing across economies. It is quite interesting to examine what happened to currency exchange rates in a period of inactivity for the overall economies due to COVID-19 outbreak. In this context a study was carried out during the period of turbulence to empirically test whether foreign exchange market in India moves in accordance with the principles of exchange rate theories. The bound test of co-integration (Pesaran,et.al., 2001) was employed to examine the evidence of a long-run relationship between the macroeconomic variables with the exchange rate of hard currencies such as USD, EUR, GBP and JPY against INR. The cross sectional relationship was further validated by using auto regressive distributed lag (ARDL) model. The absolute version of purchasing power parity theory (PPP) is evident in the Indian foreign exchange market as the analysis established a strong integration of Wholesale Price Index (WPI) and Consumer Price Index (CPI) with leading hard currencies such as USD, EUR and JPY. The association of 364 days Treasury bill return (TBR) and government Bond Return (GBR) further confirmed the postulation of Interest Rate Parity (IRP) theory as any increase in interest rate can cause exchange rate depreciation to INR. Results of this study add to the existing literature by confirming the bondage between price levels across the economies and the exchange rates during COVID-* Corresponding author.

show abstract